Financial services are economic services tied to finance provided by financial institutions. These include deposit-taking, loan and market intermediation. The industry encompasses everything from credit card companies to global payment networks, insurance providers and banks. It also includes venture capital providers and angel investors who supply investment capital to firms in exchange for ownership stakes or profit participation. Private equity funds are an example of this. Financial services are important because they help put money to productive use. Instead of just sitting under a mattress or in the bank, it can be invested to create new technologies, lend to someone to buy a home or start a business. However, it is crucial that these intermediaries are trustworthy. A failure in the sector can lead to a loss of confidence and a recession.
Today, it may seem like the lines between different sectors of the industry are blurred. For example, banks offer not just checking and savings accounts but mortgages and credit cards. It wasn’t always this way, as each sector once had its own niche. In the 1970s, however, consumers demanded more options. As a result, some banks started offering other products and some companies began to merge and become conglomerates.
Other parts of the financial services industry include accountants who can help small businesses keep proper accounting records and file taxes, insurance providers that offer protection against death or injury, securities traders who provide buying and selling options for stocks, bonds and other commodities, and monetary policymakers who set monetary policies like interest rates.